Empirical analysis of regional finance-growth nexus: The case of Hubei Province in China

The relationship between financial development and economic growth has received a lot of attention recently. This paper employs vector error correction model (VECM), granger causality test and path coefficient analysis to evaluate empirical relation between regional financial development and regional economic growth in China. The results of granger causality test indicate that financial development exerts a positive effect on economic growth, capital growth and productivity growth respectively in Hubei Province. The result of path coefficient analysis shows that financial development exerts a large direct effect on economic growth, but the indirect effects of financial development on capital growth and productivity growth, which feeds through to economic growth are tenuous.